In China-Lithuania Row, Will the EU Stay on the Sidelines?

As concern grows about Russian belligerence in eastern Europe, it’s ironic that Lithuania, a former Soviet Socialist Republic, is embroiled in a showdown with a different superpower: China. Beijing responded swiftly and intensely to Lithuania’s decision to deepen informal ties with Taiwan, essentially making Lithuania into a cautionary tale for any other state looking to pursue such a course. At the same time, the small Baltic state has become a test case for the European Union’s ability to craft a unified response to China’s attempted coercion of a member state.

The saga began in July 2021, when Lithuania and Taiwan announced they would open trade representative offices in each other’s territory. That in itself is not unusual – many European countries host such offices – but no country in Europe had opened a new Taiwanese representative office since 2003.

More than the office itself, however, Beijing took issue with the name. Similar to its official name for the Olympics (Chinese Taipei), Taiwan’s overseas representative offices generally feature the word “Taipei” rather than “Taiwan.” The latter, in Beijing’s eyes, is a dangerous recognition of the island as independent territory, while using a city name is less provocative. In the United States, for example, Taiwan’s mission is known as the Taipei Economic and Cultural Representative Office; the equivalent in Germany is the Taipei Representative Office.

In Lithuania, however, the new office, which officially opened on November 18, 2021, is known as the Taiwanese Representative Office.

Beijing was furious. China withdrew its ambassador to Lithuania in August over the office, which hadn’t even opened at the time. Lithuania eventually withdrew its diplomats from Beijing and closed down its embassy as well, after China revoked the diplomatic IDs of its staff.

“We demand the Lithuanian side immediately correct its wrong decision,” China’s Foreign Ministry said in a statement that added an ominous warning: “The Lithuanian side is responsible for all consequences arising therefrom.”

Sure enough, the diplomatic downgrade was only the beginning of China’s retribution. Trade sanctions soon followed, with Lithuanian companies effectively blacklisted from trading with China. As Lithuania’s foreign minister, Gabrielius Landsbergis, told the Washington Post in an interview, “Our companies could no longer find Lithuania as a clearance option in Chinese customs. As a country, we were just removed as an option.” He estimated the cost to Lithuania as “in the millions. In the tens of millions.”

There have also been reports that China is demanding that companies based in other countries remove Lithuania from their supply chains in order to keep doing business in China. In particular, German car companies, many of which have set up manufacturing hubs in Lithuania, are being targeted.

The Federation of Germany Industries (BDI) took great offense to this, calling the trade restrictions a “devastating own goal” on China’s part. The BDI emphasized that the row had now spilled over to impact the EU as a whole, saying, “The latest measures China has adopted against Lithuania amount to a trade boycott that will impact the whole of the EU.”

Lithuania’s Landsbergis agreed. “The biggest problem is that China has escalated, targeting European companies, targeting German companies,” he told the Washington Post. “This is why we believe that it’s no longer just a bilateral issue. It’s a European one. And there has to be a European solution.”

As a result of the pressure, Lithuania may be rethinking its decision. President Gitanas Nauseda told a local radio station that the name of the Taiwanese office – although “not the opening” itself – “was a mistake.” He emphasized that the name “was not coordinated with me.” He has every reason to distance himself from the move – a recent poll found that just 13 percent of Lithuanians approve of the government’s China policy.

Still, Nauseda called China’s response unacceptable as well, accusing Beijing of implementing de facto “sanctions.”

“We have to be extremely active and make it very clear to the European Union that this is an attack, a kind of pressure on one of its member states,” he said.

Landsbergis, the foreign minister, pushed back on Nauseda’s comments by saying, “I don’t think that it was a mistake. The government doesn’t think that it was a mistake to allow the people from Taiwan island to call themselves Taiwanese.”

He continued, “…[W]hat we are calling a mistake is China’s reaction – what our companies, European companies, are now facing.”

Landsbergis also implied, however, that Lithuania might have to give in to China’s economic coercion if the EU did not step in:

It’s now a question of whether the European Union can withstand the pressure because obviously it’s not that hard to put a lot of pressure on Lithuania and expect it to break. Because there’s only so much pressure we can take. But if we stand in solidarity, if we give a very clear response that such coercion is not just against one country in the union that China tends not to like, but it’s more an incursion on the single market, than we send a signal that this is against European rules.

China, by contrast, has been keen to keep the EU out of its row with Vilnius. “We have always maintained that the dispute between China and Lithuania is a bilateral one,” the spokesperson of the Chinese Mission to the EU said in a statement.

It’s clear that Beijing is not planning on changing course any time soon. The same statement accused Lithuania of having “gravely undermined the political foundation of China-Lithuania diplomatic relations as well as the atmosphere of practical and mutually beneficial cooperation between the two countries.” It also essentially repeated China’s initial statement on the matter back in the summer of 2021, saying, “The Chinese government expresses strong protest over and firm objection to this extremely egregious act, and will take all necessary measures to defend national sovereignty and territorial integrity. The Lithuanian side shall be responsible for all the ensuing consequences.”

To paraphrase, China’s message to Lithuania is “look what you made me do.” Interestingly, though, at the same time China is denying doing anything. “We have never used coercion against any country and we oppose all forms of political and diplomatic coercion,” the spokesperson’s statement said.

As seen in previous cases of economic retaliation against South Korea and Australia, China is maintaining plausible deniability by keeping all trade restrictions informal. Instead, Beijing insists any economic impact is due to acts by private companies that are individually angry with Lithuania.

The EU, for its part, does see China’s actions against one of its members as a serious concern. The bloc, however, is torn on how to respond, and the result so far has been a lack of action.

After the informal meeting of the Foreign Ministers of the European Union in Brest, France in mid-January, Josep Borrell, the EU’s top diplomat, said members had “expressed clear solidarity with Lithuania and discussed how we could actively press on with de-escalation.” At the same time, Borrell also announced that the EU was actively seeking “an important summit” with China in March, which hardly sends the message that Brussels is going to hold Beijing to account.

Lithuania has been urging immediate, concrete action, but so far the EU has only offered long-term options. It is preparing a WTO case on China’s actions, but such a case would take years to reach a verdict – and with the WTO appellate body currently sidelined by a lack of panel members, a final and binding verdict may never happen.

Meanwhile, France’s foreign minister said that Paris would use its ongoing EU presidency to “speed up” the legislative progress on a proposed “anti-coercion system.” That would give the EU more options to deal with future economic coercion of its members but does nothing to help Lithuania in the current crisis.

It’s likely that EU members are reluctant to jeopardize their own lucrative trade with China over Lithuania. Privately, other governments may feel – like Lithuania’s own president – that the naming of the Taiwanese office was a mistake, which makes it even less likely other governments will want to stick their necks out for Vilnius. However, the EU also doesn’t want to be seen as giving in to China’s economic coercion.

Nils Schmid, the foreign policy spokesman for the Social Democratic Party, which leads Germany’s governing coalition, neatly summarized the EU’s dilemma in comments to the South China Morning Post. “I think there are not many EU member states which choose to pick a fight with the Chinese government on the choice of ‘Taiwan’ or ‘Taipei’ for the representative office,” Schmid told SCMP.  But he also said that Lithuania – and, by inference, the EU – needs to stick to its guns now, because changing course would encourage future coercion: “In the eyes of the Chinese government, [giving in to China’s demands] would be interpreted as a vindication of very harsh rhetoric and measures taken against Lithuania.”

If Lithuania stands firm, however, it should be prepared to live without economic or diplomatic ties with China indefinitely. After all, China has done this to a European country before.

In 2010, China cut imports from Norway and shut down diplomatic engagements after jailed dissident Liu Xiaobo received the Nobel Peace Prize – a decision the Norwegian government had nothing to do with. The resulting diplomatic and economic freeze lasted six years. Norway only got back into China’s good graces in 2016 by singing a joint statement recognizing the Nobel Peace Prize award as the cause of the break and assuring Beijing that “[t]he Norwegian Government fully respects China’s development path and social system.”

China immediately claimed victory, with Foreign Minister Wang Yi saying, “Norway deeply reflected upon the reasons why bilateral mutual trust was harmed, and had conscientious, solemn consultations with China about how to improve bilateral relations.”

Norway is not a member of the European Union (although it is a part of the European Economic Area and thus the EU’s single market), and Brussels never offered serious support or backing to Norway during its break with China. That does not necessarily mean Lithuania will face the same fate, however. Vilnius, unlike Oslo, is part of the EU. Plus, 2010 was a different time in China-EU relations, before Brussels named China a “systemic rival.”

Still, the current trend does not bode well for strong EU action to counter China’s economic coercion of an EU member state.